CTOS (5301) CTOS DIGITAL BERHAD on track with expansion
PETALING JAYA: The prospects of CTOS Digital Bhd looks bright with higher earnings anticipated over the next few years underpinned, among others, by inorganic expansion and expansion into new sectors.
The company, a leading credit rating agency (CRA) and credit-related data solutions provider with over 70% market share in the country, hopes to forge new partnerships as this would spur its expansion in Asean.
Maybank IB Research said strong organic growth potential is underpinned by new verticals, especially upside from the pending launch of digital banks, while inorganic expansion is happening in parallel per the acquisition of stakes in Basis Corporation (Basis) and Business Online (BOL), notable credit rating companies in Malaysia and Thailand, respectively.
“These partnerships, in our view, are synergistic to the overall group operating footprint and will facilitate accelerated expansion within Asean.
BOL is the largest company information bureau in Thailand, with an estimated 59% market share.
It noted that expansion into new regional markets or potential synergistic mergers and acquisitions (M&As) could further broaden the group’s reach and market share.
The research house, which is initiating a coverage with a “buy” call on the stock with a target price of RM2.17, said it is projecting a three-year (FY’20-FY’23 estimate) core net profit compounded annual growth rate (CAGR) of 28%, driven primarily by growth across all customer segments and average revenue per customer (from new offerings, new verticals, more value-added products).
“Our forecasts have imputed annual customer and account growth of 5%-10% year-on-year (y-o-y).
“We expect profit margins to improve as the group is able to enjoy greater economies of scale (improving revenue and relatively stable costs) as well as a 60% dividend payout policy with low capital expenditure (capex) requirements.
“Free cash flow generation is estimated to range between RM51mil-RM87mil in FY’21-FY’23.”
Maybank IB added that greater marketing efforts amid an improved economic situation would drive accounts growth, while the launch of new digital solutions and the penetration of new sectors would spur faster adoption and demand for CTOS Digital’s services.
CTOS Digital also intends to expand into new sectors, specifically automotive, real estate and insurance. Bank Negara is on the verge of awarding five digital bank (DB) licenses in Malaysia, which is expected to drive stronger digital adoption relating to credit analytics.This would, in turn, spur demand for CTOS’ existing database solutions and services, as well as potential new capabilities that it may develop based on specific or customised DB requirements.
Among the downside factors, it said are the slower-than-expected economic growth, particularly as a result of an extended Covid-19 pandemic that leads to more severe lockdowns, as this would negatively impact demand, particularly from SMEs.
“The entry of new players into the credit reporting space could also eventually erode the group’s market share,” it said.
The company has an extensive database of about 15 million consumer profiles and eight million company and business profiles.
CTOS Digital is said to have one of the largest trade reference databases in Malaysia.
https://www.thestar.com.my/business/business-news/2021/09/21/ctos-on-track-with-expansion
